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Ramblings about cycling, politics, and life.

Quick! Someone call Alex Jones!!

Facebook statuses used to be so awesome. They allowed people to spam the world with a paragraph of their stream-of-conscious as often as they wanted (many abused that privilege).

What a brilliant idea it was at the time. Then people got lazy with both reading and writing. They needed a new outlet that also worked with their ever-decreasing attention spans. That’s why Twatter is so popular now – same benefits with even less investment. I went the other direction. Most of my ramblings are too long for Facebook statuses. My Twatter account is used almost solely for talking shit to the morons on CNBC. So here I am…

Literally, that’s yours truly here typing this post.

As everyone is well aware of at this point, oil prices have taken a dive down the shitter. Most people are chalking it up to election time, but the remaining 0.05% of the population (the people with brains) know that’s laughable. As a disclaimer, I do not actually believe the scenario I’m about to suggest. Not because it isn’t possible or because it’s unreasonable, but because I am not convinced people had the necessary foresight to pull it off. So, please, don’t start refuting an argument I never actually made. It’s a thought experiment on something that popped into my head as I zoned out while stuck in traffic. Nonetheless, it’s interesting to think about and, even if we’ve arrived at this place by dumb luck, it isn’t too late for this plan to be acted on. Of course, if it does turn out to be the case, I called it first*!

*actually I just found out I’m three weeks and two days late to the party, as you’ll see later.

You’d think the OPEC national leaders would be highly distraught and looking to slash supplies ASAP to bolster prices, but they aren’t. Why not? Let’s rewind to me sitting in traffic and pondering the world oil situation (yea I’m weird like that, but bike season is over so I have nothing to occupy my mind). OPEC is facing declining global market share as Russian and US oil production grow. Russian production has been steadily increasing for some time and US production has increased 50% since the start of the recession.

The skyrocketing oil prices of the past decade have made US and Russian oil fields previously viewed as too high-cost to suddenly be seen as viable. Companies dove in head first, assuming high oil prices were here to stay, invested massive loads of cash, and started drilling every field in sight. Then prices didn’t keep going up. Sound vaguely familiar? It should.

If OPEC drops production in an attempt to bring oil prices back up (which may or may not actually work), while it will boost their profits in the short-term, the high prices will make high-cost drill projects in the rest of the world worth continued pursuit, thus maintaining the decline in their market share. You don’t run a successful global oil cartel by focusing on short-term profits. Sole focus on short-term profits is reserved for US corporations slowly running themselves into the ground and libertarians. Rather than act to help high-cost foreign oil production continue, OPEC is letting oil prices collapse. The OPEC countries have easily accessible oil reserves out the ass that are being drilled/pumped at a fraction of the cost of US and Russian wells – they still control 81% of the world’s oil reserves. OPEC nations remain profitable at low oil prices, US and Russian drilling operations do not. OPEC is sitting on a sea of cheap supply. The US and Russia are spending top-dollar to extract limited supplies. The solution to OPEC’s declining market share is obvious: LET oil prices go down the toilet, facilitate them doing so if necessary. Be the Wal-Mart of the oil world and use your low operating costs to put everyone else out of business. Declining profit margins and eventual losses will force increasing numbers of expensive-to-run US and Russian operations to shut down… and OPEC swoops right in to pick up the slack. When competition is sufficiently destroyed, oil prices can be picked up to the point just under where those foreign operations are financially viable, OPEC continues its monopoly, and everyone is as happy as this guy.

As far as I can tell it’s a perfectly reasonable strategy. The OPEC folks being smart enough (never mind actually influential enough) to sucker foreign drilling out into the open with high prices, then crush it with low prices is highlydubious. Still, it was an interesting thought. I think it’s even more interesting after having written this, because while writing I happened to stumble upon a Motley Fool article from someone who happens to agree with me. He also uses a lot more concrete facts and figures, probably because, unlike me, he actually knows what he’s talking about and isn’t just rambling to fill time on a lunch break. Still, that means I might not be a crazy conspiracy theorist after all.